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Europe continues to control U.S. markets

Yesterday there was a passing thought that Italy’s debt problems would deal a serious blow to the country with its interest rates at record highs since the EU began. Yesterday another passing thought that the EU would eventually be restructured based on comments from French Pres Sarkozy that a two tier EU may be the best thing eventually. Yesterday the stock market dropped 389 points, the 10-Year Note yield fell 12 basis points to close under 2.00% at 1.96%. That was yesterday; like it has been the last few weeks, one day its doom and gloom, the next not as bad. No one actually knows what will happen tomorrow; therein lies the difficulty in attempting to assess the situation on a day to day basis.

Yesterday there were comments from supposed knowledgeable people that the ECB was precluded from buying bonds from individual EU countries; obviously that isn’t the case. We reported it as fact and one reason that the debt problems in the region were unlikely to be resolved for years and that there would be defaults in a number of countries. Overnight reports from the wires saying the ECB was in buying Italian bonds, so far no confirmation from the central bank.  Italy did sell bills today, the demand was strong and for the moment markets are less concerned that Italy can not fund itself. The country sold 5 billion euros ($6.8B) of one-year bills at an average yield of 6.087% after yields yesterday on 10-Year Notes surged past the 7 percent level.

In Greece there is apparently a new leader that will form an interim government;  former vice- president of the European Central Bank Lucas Papademos will head a national unity government for Greece, according to the country’s presidency.

At 8:30 this morning weekly jobless claims along with the every other day optimism about Europe driving stock indexes higher and interest rate prices lower. Weekly claims fell 10K to 390K the lowest claims in 7 months, expectations were for unchanged at 400K; continuing claims also fell, from 3.707 million to 3.615 million.

September U.S. trade balance declined to -$43.11B, if here is any consensus in the markets these days the forecast was for the balance to -$46.3B. October import prices fell 0.6% against estimates of -0.2%; export prices fell 2.1%.

At 1:00 this afternoon Treasury will complete borrowing $72B this week with $16B of 30-Year Bonds. The 10-Year Note auction yesterday was weaker than traders were expecting, sending rates higher on the reaction before regaining strength into the close with the 10-Year Note at 1.96%. This morning the 10-Year Note is hovering at 2.05%.

At 9:30 the DJIA opened +126, NASDAQ +30, and the S&P +13; the 10-Year Note 2.05% +9 bp and mortgage prices down 8/32 (.25 bp).

Attempting to trade on fundamentals these days is almost impossible with the constant changes happening in Europe. Looking solely at the technicals, the 10-Year Note presently is sitting right on its 40 day average at 2.05% with its 20 day average at 2.09%. 30-Year FNMA MBS today is trading below its 40 day and at the moment holding at its 20 day, similar to the 10-Year Note. The relative strength in both markets is hanging at neutral. The overall technical picture slightly positive but not by much. That the 10-Year Note this morning is back over 2.00% somewhat negates its close yesterday below 2.00%. With U.S. markets being completely dominated by what happens in Europe the outlook for U.S. interest rates in the end is impossible to anticipate. Bottom line; markets are adrift in a sea of uncertainty over Europe and the impact on the U.S. economy.

The problems in Europe escalated overnight

Yesterday in Italy, Prime Minister Berlusconi’s offer to resign boosted optimism Italy would appoint a new leader who can tame the debt crisis.  Europe and U.S. stock markets rallied and interest rates increased on the idea that progress was being made.  That all lasted about 20 hours; this morning Europe’s equity markets are lower and in the U.S. the DJIA (Dow Jones Industrial Average) opened down 200 points, the 10-Year Note at 9.30, +32/32 at 1.97%, -11 bps and mortgage prices +11/32 (.34 bps).

French banks taking huge hits this morning on deposit factor for Italian bonds due in 7-to-10 years will be raised to 11.65%, the French unit of LCH Clearnet said.  That compares with a charge of 6.65% announced last month.  Clearing houses guarantee that investors’ trades are completed by standing in the middle of two counterparties and raise margin requirements to protect themselves against losses should one side of the trade fail.  French banks face collateral damage from the political turmoil that sent Italy’s bond yields to euro-ear records.  Austerity measures to balance Italy’s budget are also threatening growth in an economy that has lagged behind the European average for more that a decade and may hurt the French banks’ consumer businesses.

Italy’s $2.6 trillion of debt is the world’s forth largest, behind the U.S., Japan and Germany and more that that of Greece, Spain, Portugal and Ireland combined.  Relative to gross domestic product, it is the highest in Europe after Greece, standing at about 120%.

Events in Europe continue to drive U.S. markets, everyday analysts try to assess each event that occurs.  Yesterday markets were motivated by Berlusconi’s offer to resign after he failed to get necessary votes of confidence; U.S. stocks rallied, U.S. interest rates increased.  This morning the U.S. 10-Year Note yield is trading once again just below 2.00% and U.S. stock indexes are being hit hard in early trading.  Yesterday markets believed the Italian crisis was on the path of being dealt with, today with margins increasing and Italy’s 10-Year Note at the highest ever since the EU was formed in 1999 another round of panic.  Focus now will likely be on the ECB, whether it will step up and buy Italy’s debt and take the pressure off…for the moment.

Investors moving out of equities ths morning and into treasuries on worsening outlook in Italy and the inability of all of Europe’s various entities cannot agree on what to do.  Over 2 years and the problems continue to worsen.  G-20 leaders last week balked on having the IMF taking a larger roll; politicians running for cover and everyone looking out for number one.  Europe is going to fall back into recession, as it does U.S. equities will be drawn down; safely into treasuries  is the likely outcome with possibly much lower rates.  Talk is cheap as it is said, the 10-Year Note, pacesetter for mortgage rates, while under 2.00% this morning has yet to sustain a close below 2.00% since late September when Operation Twist was announced and then it didn’t hold long.  Since then though the debt crisis in Europe has increased; improving the view that U.S. rates could decline.

In the “it doesn’t matter” column this morning September wholesale inventories expected up 0.6%, were down 0.1% with inventory/sales ratio unchanged from August at 1. 15 months

At 0100pm this afternoon the Treasury will auction $24 billion of 10-Year Notes; yesterday the 3-Year Note auction went well.  Today with rates lower the demand for the 10-Year Note will be interesting’ a solid auction would add to the increasing bullishness.

The day is just getting underway; all focus will be on what if anything comes from the ECB and what the central bank will do to curb the explosion in Italian interest rates.  Greece is still not making any quick headway in forming a new government but the attention is all on Italy at the moment.

Should I Buy A Home?

The question that I get asked most often from client is “Is it a good time to buy a house?” Well, the answer to this question almost always depends on who is asking and what his/her reasons for buying a home are. Often people fall into the traps of wanting to buy a home so badly that they overlook many of the dangers and potentially stressful things that could happen down the line.

Many of my short sale clients have made themselves “house poor” (as the Department of Housing and Urban Development calls it). This is something I often warn my clients about. Being “House Poor” means that “… by putting too much emphasis (and income) into your housing expense, you may be forced to cut other expenditures, whether it be for travel, entertainment or some more important needs, such as education expenses or retirement funding.”

By making inappropriate housing decisions, many have exposed themselves to a great deal of financial exposure. By pushing themselves to their financial limits, they find themselves unable to meet their mortgage payment obligations as that payment takes a higher percentage of their income. When funds get short, other loans and obligations (and credit ratings) can and will suffer.

Additionally by not completely understanding the economic state of the nation, often homebuyers ignore housing values. Economic downturns are often accompanied by, at the very least, stagnation in housing values. And, even though it sounds crazy in markets that have seen double-digit annual appreciation in recent years, occasionally housing values will decline (as they have in recent years). Worse than a situation where it is difficult to pay the mortgage is one where there is the prospect of losing a home–or trying to sell it in a distressed market.

However, for savvy buyers with steady incomes, good credit and supple savings – this is a great time to buy a home. Firstly, mortgage interest rates are at their lowest levels years, meaning lower payments and the ability to devote less income to housing expenses. However, buyers should be warned against buying more house than they need simply because they can afford the payment.

Because less people are getting qualified for loans, there is less competition. As the market softens, less buyers will be in the market, meaning that negotiating position will be enhanced–and, it is unlikely that buyers will have to pay thousands of dollars over the listing price in order to get the home they want. More negotiating power usually means lower prices and lower monthly payments.

 

All in all, it can be a good and a bad time to buy a home depending on who you are and your financial health.

 

For more information, please visit www.crestico.com.

How to get the lowest home mortgage refinance rates?

Are you struggling with your monthly mortgage payments? If answered yes, you must try your best to refinance your home loan as this is the best way to get back on your current monthly mortgage payments. Most mortgage loans carry high interest rates and with the unemployment rate touching a record level, an increasingly large number of homeowners are not being able to cope up with their monthly mortgage installments.  Refinancing is just taking out yet another home loan with favorable interest rates and terms so that you can repay the previous loan with ease. While there are many homeowners who want to refinance their home loans, they all love to know the ways in which they can get the best refinance rates in the market. Have a look at the ways in which you may secure low rates on the refinance loan.

1.Check your credit score: As you know that the lenders will always check your credit sore before lending you with a new line of credit, you must try your best to boost your credit score in order to get the best rate in the market. As the credit score is the best way to track the financial history of a person, you must take good care about the financial habits that can drop down your score. Most financial experts often say that one must initially go for credit repair before applying for a home loan so as to grab reasonable interest rates.

2.Shop around among different lenders: Refinancing can be done from your previous lender and from any other lender too. If you want to change the lender from whom you want to take out a mortgage refinance loan, you must shop around extensively so as to make sure that you get the most competitive rate in the market. The lenders are waiting to offer you the loans of their companies and thus you need to make sure that you’re choosing a loan that has the perfect interest rate that can help you save your dollars on the mortgage loan.

3.Pay points on the refinance loan:  Even if your credit score is not enough for you to secure a loan with an affordable rate, you can still get the lowest refinance rates. This is possible by paying points while taking out the new refinance loan. A point is1% of the loan amount that has to be paid in cash during the closing. This can lower the rates.

4.Choose a different term:If you refinance your mortgage loan at a 15 year term mortgage loan, you can get low rates on the loan. However, a 15 year term mortgage loan will require high monthly payments but will also ensure low rates at the same time.

Therefore, if you want to refinance your mortgage loans at a lower rate, you can easily follow the tips mentioned above. Get a loan at a low rate and repay the loan with ease, thereby retaining your home ownership rights.

Five Mistakes You Shouldn’t Make As a First Time Homebuyer

Buying a first home can be a daunting experience. Here are five common and costly mistakes that novice home buyers make:

1. Ignoring the costs of having a low credit score. Lower-score borrowers pay thousands of dollars in increased interest rates over the life of the loan.
2. Muddying the waters by shopping for other things before closing. Lenders continue to check credit scores right up until the time of closing. Too much shopping could cause the lender to take back the loan.
3. Scrimping on an inspection. Being surprised by the need for expensive repairs can be financially devastating.
4. Buying without contingencies. Buyers should give themselves an out if the inspection turns up problems or the bank raises the interest rates.
5. No money for insurance. Insurance can be surprisingly pricey. Buyers who don’t budget for it can face a nasty surprise.

Source: CNNMoney.com, Les Christie (04/19/2010)

 

Mitra Karimi